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Divisive Elan boss Martin faces ownership showdown

Kelly Martin, President and CEO of Elan, speaks at the Reuters Health Summit in New York November 17, 2008. REUTERS/Brendan McDermid
Kelly Martin, President and CEO of Elan, speaks at the Reuters Health Summit in New York November 17, 2008. REUTERS/Brendan McDermid

By Padraic Halpin and Jessica Toonkel

DUBLIN/NEW YORK (Reuters) - When Kelly Martin, a former Merrill Lynch banker with no drug industry experience, took over as CEO of Ireland's Elan in 2003, analysts assumed his mandate was to clean up the troubled company and sell it.

But 10 years later, despite boardroom battles, drug failures and headlines criticizing his use of private jets, Martin is still in charge.

That might change after Monday, when shareholders vote to back his vision for Elan or open the door for U.S. firm Royalty Pharma after a fractious takeover battle.

On offer for shareholders is Martin's plan to reinvest a chunk of the $3.25 billion Elan received from former partner Biogen Idec for its interest in multiple sclerosis (MS) drug Tysabri, in a series of deals aimed at reshaping the company.

Or they can vote down the acquisitions, a $200 million share buyback and drug spinoff, clearing the way for Royalty, which had its third increased bid valued up to $15.50 per share firmly rejected by Elan's board this week.

Its offer is contingent on shareholders rejecting all four resolutions at the meeting.

A third option is that shareholders vote against Martin's planned acquisitions, but back the other resolutions, allowing the CEO to live to see another day.

"It's more than amazing, but my guess on the outcome is Kelly Martin is still CEO after that meeting despite everything that has gone on," said Ib Sonderby, who spent years campaigning against Martin and Elan's board and created a rallying point for angry investors with his now-ceased website, www.saveelan.com.

Martin's allies - loyal colleagues past and present - believe the low-key family man, who prefers sweaters to suits, has never got the credit deserved for fixing the troubled company and lifting its share price almost six-fold.

But his detractors - from embittered former board members to former investors - are stunned that the 54-year-old one-time investment banker, who often runs the $7 billion drug firm from his home office in Connecticut, is still in charge.

TOO MUCH

"I am worried that just as he has sold a bunch of things too cheap over the years, now he will just pay too much to buy things," said Sonderby, who owned 2 million shares in Elan in 2010 including his personal holdings and those of companies on whose boards he sat, but sold out this year.

The bitter takeover battle, involving injunctions, court hearings and a war of words, is reminiscent of Sonderby's days of campaigning against what he and other activists perceived to be Elan's mismanagement and poor corporate governance.

Elan has always rebuffed Sonderby's charges.

The Danish investor's gripes came to a peak when Elan shares tumbled to under $5 in 2010, from $35 two years before. Martin's allies say you have to go back to his arrival seven years prior, when the stock was as low as $2, to properly judge his tenure.

"Martin has been very shareholder-friendly when you look at the stock," said a person familiar with Elan, who wished to remain anonymous because he is friends with Martin. "And he did clean it up, until he started buying things."

Martin declined to be interviewed for this story.

Once Ireland's biggest public company, Elan was reeling from an accounting scandal and was under investigation by the U.S. Securities & Exchange Commission (SEC) when Martin swapped 21 years on Wall Street for a first crack at the pharmaceutical industry in 2003.

Elan's share price had sunk to $2 from over $60 in the space of a year and some analysts feared it could go bankrupt.

"It was a very, very precarious situation, but Kelly and the board had nerves of steel and one by one by one, he and his team dealt with the challenges," said Michael Tory of Ondra Partners, one of Martin's key external advisers over the past decade.

"Most people don't want to run apart from the pack, but Kelly has no fear of doing that. He is relentless in his dedication to creating value for shareholders and never takes his eye off that goal."

UNDERRATED

That dedication sometimes means London-based Tory having his Sunday mornings interrupted when Martin, out walking at 5 or 6 a.m. his time, phones his friend to discuss ways to take the company forward.

"He'll call me from his son's hockey game with an idea he wants to test out," ex-Lehman Brothers executive Tory recalls.

Another long-time colleague, who wished to remain anonymous because he was not permitted to speak to the media, said the CEO is underrated because he "doesn't play the game", preferring to spend his spare time with his wife and five children rather than attend conference after conference.

Detractors and supporters agree that the laid-back exterior should not fool anyone and that Martin is a fighter.

In a colorful 10 years, due to end last year before he decided to postpone his retirement, Martin has proved he is no pushover, something former dissident directors Jack Schuler and Vaughn Bryson saw first hand.

Nominated to the board in June 2009 in a move that appeared to be the beginning of the end for the Elan CEO, the pair quit 15 months later after their challenge to Elan's transparency and governance ultimately failed.

In a letter published in the Financial Times on Wednesday headlined "Elan's current actions have a ring of familiarity about them", Schuler said he had no confidence Martin was acting in shareholders' interests.

Elan rejected Schuler's remarks and noted in a statement that its shares had almost trebled in value since it announced Schuler had expressed his desire to resign from the board.

Among those who have filled Schuler's place, however, are new chairman Bob Ingram, a former top executive at GlaxoSmithKline , and one-time U.S. Food and Drug Administration (FDA) commissioner Andrew von Eschbach, big industry names who have effectively staked their reputation on the turnaround expert.

They will soon know if they were right.

"If you look at this company, you need to be able to marry world-class science with world-class business management," Martin told Reuters on the day he took charge in January, 2003.

"What I would hope to bring to the party fairly quickly is an ability from a business point of view."

(Editing by David Holmes)

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